The newly renamed Department for Promotion of Industry and Internal Trade (DPIIT) on Thursday made it clear it was not going to give firms any extension to the February 1 deadline to comply with the conditions contained in the Press Note 2 on FDI Policy in e-commerce.
According to a Crisil report, almost 35-40 percent of e-retail industry sales - amounting to Rs 35,000-40,000 crore - could be impacted due to the tightened policy.
The regulations unveiled at the end of December also ban online retailers from allowing companies to sell products exclusively on either platform.
The new rules state that the inventory of a seller or vendor will be seen as being controlled by a marketplace if the vendor purchases more than 25 percent of its inventory from the marketplace, or any of its group firms. Given the magnitude of investments at stake, the companies are also keeping their plan B ready in case the deadline isn't extended.
An Amazon spokesperson Thursday stated that the company will continue to engage with the government to seek clarifications and work towards minimising impact on its customers and sellers.
Senior leaders and officials are working on an overdrive to ensure that the exclusive partnerships are restructured and other aspects are taken care of to ensure compliance, the official quoted above said. Emails sent to Amazon didn't elicit a response, while Flipkart declined to comment. If so, Amazon, Walmart and other foreign businesses looking to expand in the country will have to change their business structures in order to be in compliance with the new rules.
The policy will create new headaches for Walmart which past year invested $16 billion for control of home-grown Flipkart, and Amazon which has committed $5.5 billion to India, as both companies would now be forced tweak business structures there. The group also wants the formation a "Special Investigative Team" to investigate the business model of major ecommerce players, while also implementing the policy on domestic players.
The decision not to extend the deadline has been welcomed by traders' bodies and home grown platforms such as Snapdeal and ShopClues, which have been campaigning vigorously for this outcome.
However, the loss of foreign backed firms is a gain for small firms and traders.
However, e-commerce firms don't hold inventory as they do contract manufacturing and then vendors buy such labels either from their etailers' wholesale arms of e-commerce companies or directly from another distributor and sell it on the marketplaces.
According to smaller e-commerce firms, this move would help them in creating a level-playing field.
This has brought a sigh of relief and deep satisfaction to CAIT.
The regulations are expected to have a far-reaching impact on India's e-commerce sector, which has drawn billions in foreign investment.